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Wednesday, August 10, 2011

Whole Foods. $4.2 Million. Again.

Mayor Dave Bing and Governor Rick Snyder signed off on a $4.2 million incentive package last month that will bring a Whole Foods grocery store to Detroit's Midtown neighborhood in 2013. Quite frankly, I'm thrilled to have another grocery store in Detroit, but I don't believe that a Whole Foods is worth $4.2 million in incentives - especially when a large part of those incentives are coming from governments that don't have much cash to throw around.

I mentioned my opinion at various places, including on-line. I was ready to let the issue die because there seems to be something about a Whole Foods opening in Detroit that impairs the critical thinking skills of otherwise intelligent Detroiters, thus making any discussion of the issue extremely frustrating. However, a certain blogger has prodded me into revisiting the issue.

This blogger made a thinly veiled swipe at me for supporting Michigan's film tax credit program yet opposing the $4.2 million incentive to attract Whole Foods to Detroit. For those who don't know, I own a small film production company in Detroit and have supported the film tax credit, even though none of the projects that I've worked on have ever received said tax credit. I was also the one who created a page on Facebook entitled Whole Foods Isn't Worth $4.2 Million in Incentives.

Since this blogger brought up the film incentive, let's talk about the film incentive and how it compares to the incentive package for Whole Foods.

To summarize briefly, there is a strong connection between a location being featured in a motion picture and said location seeing a significant increase in tourism. There is more than 50 years of real world economic data to support this connection. It has been discussed and analyzed by scores of economists in peer reviewed journals and is factored into the business plans of Fortune 500 companies. By some accounts, the increase in tourism can be as high as 55% once a location is featured in a motion picture.

This connection was factored into the creation of Michigan's film incentive program, but largely ignored by the Michigan Legislature when Governor Snyder proposed gutting it. (This, by the way, is another reason why I hate term limits - but that's a topic for another post.) If one includes the billions of tourism dollars that flow as a result of the motion picture industry and the tax revenue that results from those billions, the end result is that state recoups its incentives within a 1 to 2 year time frame.

Will the State of Michigan or City of Detroit recoup the $4.2 million incentives from Whole Foods within the next 1 to 2 years?

No, they will not.

It will, in all probability, take more than 20 years for us to recoup those incentives to Whole Foods. That time horizon is particularly important because there is absolutely nothing to guarantee that Whole Foods will stay in Detroit for 20 or more years. One of the key components of this deal is the new market tax credit, which only requires that businesses benefiting from it remain in operation for 7 years after first receiving the incentive.

To recap, the film incentive allows a state government to recoup their money within a relatively short time period. Governor Snyder axed said program. Georgia, Louisiana, New Mexico, and Ohio are only all too happy to take those jobs and that tax revenue.

Whole Foods is coming to Detroit in 2 years. $4.2 million in incentives has been spent that will not be recouped any time soon, if it ever is. All of those other projects that Michigan's allocation of new market tax credits could have been used on will simply have to find another source of funding. There's a decent chance that most of those projects will end up in Georgia, Louisiana, New Mexico, or Ohio as well because none of those states spent a single penny to attract a Whole Foods.

I'm thrilled to have another grocery store in Detroit. I just don't think that a Whole Foods is worth $4.2 million in incentives.